What Happens When a Buyer Fails to Close a Real Estate Deal in Ontario?
A firm closing date is not a suggestion. Once an Agreement of Purchase and Sale becomes binding and all conditions have been satisfied or waived, both the buyer and seller are generally expected to complete the transaction.
If the buyer does not close, the legal consequences can be significant. What happens next depends on the agreement, the reason for the failed closing and how the seller responds.
Why Do Buyers Fail to Close?
A buyer may be unable to obtain financing, discover that the property was appraised for less than expected or simply change their mind.
A buyer may also try to rely on an inspection, financing or other condition that has already expired or been waived.
Financial difficulty does not usually release a buyer from a firm contract. A buyer who signs an agreement without a financing condition; or later waives that condition; normally accepts the risk that financing may not be available on closing.
Who Was Actually in Default?
Before treating the agreement as terminated, the seller should confirm that they were ready, willing and able to close.
This generally means that the seller had good title, properly signed closing documents and the ability to deliver everything required under the agreement.
Closing-day communications can become important evidence. The lawyers’ trust conditions, requests for extensions, mortgage discharge arrangements and electronic registration records should all be preserved.
A seller should not assume that the buyer is automatically responsible simply because the purchase funds did not arrive on time. The entire closing record must be reviewed.
What Happens to the Deposit?
A buyer who defaults may lose the deposit.
In many Ontario transactions, the deposit is held in trust by the real estate brokerage. The brokerage cannot simply release the deposit to the seller because the seller requests it.
The parties may need to sign written directions or a mutual release. If they cannot agree, a court may have to decide who is entitled to the money.
The deposit and the seller’s damages are related but separate issues. Depending on the circumstances, the seller may be entitled to keep the deposit and also claim losses that exceed the amount of the deposit.
What Damages Can the Seller Claim?
The purpose of damages is generally to place the seller in the financial position they would have occupied if the buyer had completed the transaction.
If the property is later sold for less money, the difference between the original purchase price and the eventual resale price may form an important part of the seller’s claim.
The seller may also claim reasonable losses such as:
- Additional mortgage interest;
- Property taxes;
- Utilities and insurance;
- Maintenance and carrying costs;
- Additional legal expenses; and
- Reasonable costs of reselling the property.
Not every expense will automatically be awarded. The seller must prove the loss, connect it to the buyer’s breach and show that reasonable steps were taken to limit it.
The Seller Must Take Reasonable Steps to Reduce the Loss
A seller cannot allow losses to grow unnecessarily and then expect the buyer to pay every dollar.
After a failed closing, the property should generally be placed back on the market within a reasonable time and in a commercially sensible manner.
This does not mean that the seller must accept any offer immediately. It means making reasonable decisions based on the market, obtaining professional advice and keeping evidence of the listing strategy and offers received.
A rushed resale far below market value may create a dispute about whether the seller acted reasonably.
What Should the Seller Do Immediately?
A seller facing a failed closing should consider the following steps:
- Ask the closing lawyer to preserve all closing-day communications and documents.
- Do not sign a mutual release without understanding its effect on the deposit and any future claim.
- Keep records of mortgage interest, taxes, utilities, insurance and other carrying costs.
- Obtain advice about relisting the property and documenting the resale process.
- Avoid informal statements suggesting that the buyer has been released.
- Speak with a real estate litigation lawyer promptly.
Frequently Asked Questions
Can a Buyer Walk Away Because the Bank Refused Financing?
Usually not if the agreement is firm and there is no available financing condition. The exact wording of the agreement and the surrounding circumstances must be reviewed.
Does the Seller Automatically Receive the Deposit?
No. A brokerage holding disputed money in trust may require written directions from both parties or a court order before releasing it.
Can the Seller Relist the Property Immediately?
The property often needs to be remarketed to reduce the seller’s losses. However, the timing and legal effect of relisting should be discussed with a lawyer first.
How Long Does the Seller Have to Sue?
Ontario generally has a two-year basic limitation period running from the date the claim was discovered. However, limitation periods depend on the particular facts, and legal advice should be obtained promptly.
How Minhas Lawyers Can Help
A failed closing can quickly turn a routine transaction into urgent litigation.
Minhas Lawyers Professional Corporation assists buyers and sellers in Mississauga and throughout Ontario with failed closings, deposit disputes, claims for damages and other real estate litigation.
We review the Agreement of Purchase and Sale and the closing record, identify the available remedies and help the client take practical steps before the loss becomes larger.
To discuss your circumstances, contact Minhas Lawyers Professional Corporation at (905) 671-9244 or use the contact form on our website.
Disclaimer: This article provides general legal information only. It is not legal advice and does not create a lawyer-client relationship. Legal rights and deadlines depend on the particular facts. Obtain advice from an Ontario lawyer about your situation.
